Restaurant and other U.S. employers should audit and tighten their pay and record keeping practices as the U.S. Department of Labor (DOL) Wage & Hour Division’s deploys its new employee Smart Phone application and other technology tools that DOL plans to use in waging war against employers that violate the Fair Labor Standards Act (FLSA) minimum wage, overtime and record-keeping requirements against employers.

Under the Obama Administration, the DOL has undertaken a wide range of efforts to promote compliance with and enforce the minimum wage, overtime and other requirements of the FLSA against restaurant and other employers. As part of this enforcement and compliance campaign, DOL is developing and deploying new Smartphone applications and other tools that it hopes with help employees and DOL enforce the FLSA.

One of the newest of these tools is a new Smartphone application intended for use by employees. DOL recently has developed a Smartphone application available here that DOL intends will help employees independently track the hours they work and determine the wages their employer owes them. Available in English and Spanish, DOL reports users can track regular work hours, break times and any overtime hours for one or more employers. DOL touts the new application as allowing workers to keep their own records instead of having to rely on their employers’ records.

The new timekeeping application tool for employees is just one of several new resources that the DOL hopes will support its enforcement and compliance initiatives. For instance, the free mobile application “Eat Shop Sleep” available herefrom the DOL allows consumers, employees and other members of the public to check if the DOL Wage and Hour Division has investigated a hotel, restaurant or retail location and whether DOL found FLSA violations.

FLSA Wage & Hour Violations Can Carry Big Liability

The FLSA requires that covered nonexempt employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates for hours worked beyond 40 per week. In accordance with the FLSA, an employer of a tipped employee is required to pay no less than $2.13 an hour in direct wages provided that amount plus the tips received equals at least the federal minimum wage of $7.25 an hour. If an employee’s tips combined with the employer’s direct wages do not equal the minimum wage, the employer must make up the difference. Employers are required to provide employees notice of the FLSA’s tip credit provisions, to maintain accurate time and payroll records, and to comply with the act’s restrictions applying to workers under age 18.

Violation of these requirements can result in significant civil or even criminal liability. Under the FLSA’s civil remedy provisions, employers violating minimum wage or overtime requirements can be held liable for back pay plus exemplary damages, attorneys’ fees and other costs. Additional liability can arise from civil penalties imposed for record-keeping violations. If the violations are found to be knowing and willful, criminal penalties also are possible. Since such violations can qualify as a felony under the FLSA, these liabilities can extend both to the employing entity as well as owners or management officials under certain circumstances.

Under the Obama Administration, enforcement of these rules in the restaurant and other industries with low paid workforces has become a key Labor Department priority, as evidenced by recent enforcement actions that the DOL has taken against Oklahoma-based El Tequila LLC restaurants and Florida-based Domino’s Pizza franchise operator PDQ Pizza.

Lawsuit against El Tequila LLC Seeks $1M In Back pay

On October 25, the DOL announced it is suing Tulsa-based El Tequila LLC and its owner, Carlos Aguirre, for alleged violations of the FLSA’s minimum wage, overtime and record-keeping provisions which DOL claims resulted in a total of approximately $1 million in unpaid wages owed to 221 kitchen and wait staff, hosts and bussers at four restaurant locations.

DOL charges that El Tequila LLC violated the FLSA by paying FLSA-covered employees, who in some cases worked as many as 72 hours in a week, a fixed salary without overtime pay for hours worked in excess of 40 hours in a week. In addition to overtime violations, DOL charges this practice resulted in minimum wage violations because employees did not always receive at least the federal minimum wage of $7.25 per hour. DOL also claims investigators found that wait personnel were required to turn their tips over to management at the end of every shift, which caused their pay to fall below the minimum wage. Finally, the suit charges employer did not keep proper records as required.

The suit filed in the Northern District of Oklahoma, Tulsa Division, seeks to recover the full amount of nearly $1 million in back wages for the employees as well as an injunction prohibiting future violations of the FLSA.

DOL’s announcement of its El Tequila LLC lawsuit follows on the heels of DOL’s October 24 announcement that Melbourne, Florida-based PDQ Pizza, doing business as Domino’s Pizza, has paid $371,675 back pay to settle DOL charges that it violated the FLSA’s overtime, minimum wage and record-keeping provisions.

According to DOL, PDQ operates Domino’s Pizza franchises in 19 locations in Palm Beach, Indian River and Brevard counties.

DOL says its Investigators found systemic violations resulting from the company’s failure to properly compensate tip-earning employees, such as delivery drivers, for all of their hours worked. Even when performing nontipped duties such as cooking, cleaning and stocking, DOL says PDQ Pizza paid the workers as if they were tipped employees, with hourly wage rates as low as $5.15 rather than the required federal minimum wage of $7.25.

DOL also charges that the employer made illegal deductions from employees’ wages for uniforms, and failed to properly calculate and compensate tipped employees for all overtime hours (those worked in excess of 40 in a week).

Finally, DOL charged the employer failed to record and designate hours worked as tipped or nontipped in order to pay employees correctly, which violates the FLSA’s record-keeping provisions.

Following the investigations, DOL reports PDQ Pizza paid all back wages owed and agreed to support future compliance with the FLSA. The company also committed to changing its timekeeping and payroll practices to ensure that all hours worked by tipped and nontipped employees are properly recorded and compensated in accordance with the FLSA.

South Carolina PonchosRestaurants Pay $486,000 Backpay Settlement

PDQ Pizza’s settlement isn’t unusual. Earlier in October, Poncho’s Inc. – doing business as Poncho’s Mexican Restaurant I, II and III – and Papa’s and Beer Mexican Restaurant agreed to pay 85 employees a total of $485,913 in back wages under a FLSA settlement covering DOL charges of overtime, minimum wage and record-keeping violations at all four restaurant locations.

At Pancho’s Mexican Restaurant I, II and III, investigators found that employees were not properly compensated for all work hours. By reviewing payroll records and conducting employee interviews, investigators determined that tip-earning employees such as servers were made to rely primarily on tips for pay and consequently earned wages that fell below $2.13 per hour in violation of the FLSA’s minimum wage provision. Additionally, other employees such as kitchen staff were paid flat salaries each month — without regard to hours worked — that did not satisfy minimum wage or overtime pay requirements. The employer also failed to maintain accurate records of employees’ work hours and wages. As a result, 38 employees will receive a total of $414,079 in back wages.

DOL says the Papa’s and Beer Mexican Restaurant investigation revealed that the employer made impermissible deductions for uniforms and other expenses from the wages of tip-earning employees, causing their hourly wages to fall below the federal minimum wage. Additionally, other employees such as kitchen staff were paid flat salaries each month — without regard to hours worked — that did not satisfy minimum wage or overtime pay requirements. The employer also failed to record the hours worked by kitchen staff. As a result, a total of $71,834 in back wages is owed to 47 employees.

The restaurants have agreed to maintain future compliance with the FLSA by keeping accurate records of all hours worked by all employees, paying them at least the federal minimum wage, providing overtime compensation, and informing employees in advance that the tip credit will be used.

While the Obama Administration has made FLSA enforcement in general a priority, it is particularly targeting restaurant and certain other categories of employers who employ low-income workers for scrutiny and enforcement. “The restaurant industry employs some of our country’s lowest-paid, most vulnerable workers,” said Secretary of Labor Hilda L. Solis. “When violations of the FLSA are discovered, the Labor Department will take appropriate action to ensure workers receive the wages they have earned and to which they are legally entitled.”

The Ponchos investigations were conducted under a multiyear enforcement initiative focused on the restaurant industry in South Carolina, where widespread noncompliance with the FLSA has been found. Since the start of fiscal year 2009, the division’s Columbia District Office has concluded more than 300 investigations under the initiative, resulting in more than $2.5 million in back wages recovered for more than 2,500 workers.

“We found many low-wage employees working up to 65 hours a week without any overtime compensation and receiving pay below the federal minimum wage. Unfortunately, significant labor violations like the ones we found in this case are all too common in the restaurant industry,” said Michelle Garvey, director of the division’s Columbia office in the announcement concerning the Ponchos settlement. “We are pleased that these workers finally will be paid their rightful wages and, as demonstrated by our ongoing initiative, we will continue to investigate South Carolina restaurants to remedy violations and ensure sustained compliance with the law.”

In light of these enforcement emphasis and the growing range of tools that the Labor Department is deploying to find and prosecute FLSA violations, restaurant and other employers should use care to ensure that their practices for classifying workers as exempt or non-exempt, recording hours worked and compensating non-exempt workers comply with the FLSA and other relevant laws. When evaluating and deciding how to address potential FLSA exposures, it is critical that employers avoid the temptation to wear role tinted glasses when making wage and hour worker classification or compensable time determinations or take for granted the legal defensibility of past practices within their own or industry workforces.

Under the FSLA and applicable state wage and hour laws, employers generally bear the burden of proving that they have properly paid their employees in accordance with the FLSA. Additionally, the FLSA and most applicable state wage and hour laws typically mandate that employers maintain records of the hours worked by employees by non-exempt employees, documentation of the employer’s proper payment of its non-exempt employees in accordance with the minimum wage and overtime mandates of the FLSA, and certain other records. Since the burden of proof of compliance generally rests upon the employer, employers should take steps to ensure their ability to demonstrate that they have properly paid non-exempt employees in accordance with applicable FLSA and state wage and hour mandates and that employees not paid in accordance with these mandates qualify as exempt from coverage under the FLSA.

These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil – and in the case of willful violations, even criminal- liability exposure. Civil awards commonly include back pay, punitive damages and attorneys’ fees.

As a consequence, most employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. To minimize exposure under the FLSA, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. Steps advisable as part of this process include, but are not necessarily limited to:

Audit of each position current classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;

Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;

Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;

Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;

If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of appropriate corrective action after consultation with qualified legal counsel;

Review of existing documentation and recordkeeping practices for hourly employees;

Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and

Reengineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel prior to the commencement of their assessment and to conduct the assessment within the scope of attorney-client privilege to minimize risks that might arise out of communications made in the course of conducting this sensitive investigation.

For Help With Investigations, Policy Updates Or Other Needs

If you need assistance in conducting a risk assessment of or responding to an IRS, Labor Department or other legal challenges to your organization’s existing pay, workforce classification or other labor and employment, employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469)767-8872 .

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit and management policies and practices. The immediate Past Chair and current Welfare Benefit Committee Co-Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and HR.com editorial advisory board member, Ms. Stamer frequently has worked, extensively on these and other workforce and performance related matters.She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters.Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.

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